Exclusive Q&A on Offshore Industries and Markets with Guy Wiltcher

Posted: 20th March 2017 08:47

What Are The Main Factors When Deciding Offshore Location?

The main general factors to consider when deciding on an offshore location are the legal and regulatory regime, political stability, financial strength (e.g. S&P rating), time zone, language spoken, taxation system, geographical accessibility and availability of competent local professional advisors.

If the setting up of the operation involves the relocation and/or recruitment of staff then issues such as ease of immigration, opportunity to purchase property locally and quality of life factors like access to good schools, cost of living, cleanliness of the environment, sports and cultural facilities and low crime levels are all important.

There may also be specific factors relevant to the type of industry and/or geographic sectors that the company will be operating in such as tax treaties and customs agreements, shipping or aircraft registers, licensing regimes, local industry areas of expertise and specialist “clusters” etc.

How Should An Offshore Management Company Be Operated?

At a basic level it should be operated as any other company, e.g. proper statutory and accounting records maintained, good corporate governance exercised and the assets of the company adequately safeguarded.

In an offshore context the residence of the company and its place of management and control are often important. Prudent operational steps therefore include: holding regular board meetings in the offshore jurisdiction and keeping proper minutes and records to demonstrate that the board had sufficient understanding of key decisions reached. Where shareholders or third parties make any requests to the board it is important that these are dealt with as requests to be properly considered, rather than as instructions received and acted on blindly.

From time to time aspects of management, or the management of specific projects, may be outsourced to third parties in other jurisdictions. It is imperative that such management consultancy agreements and the services to be provided are properly documented, are at arm’s length and that it is clear the consultant has no powers to make binding decisions on behalf of the company.

How Are Technological Advances Altering The Landscape?

With the advent of e-commerce the possibility exists to base a business anywhere in the world. Without the need for the physical movement of goods offshore centres, which are often geographically isolated, are not necessarily disadvantaged in this regard.

That said there are certain physical infrastructure requirements that need to be in place alongside the financial and legislative capabilities in order to capitalise on these opportunities. These include an ample and reliable electricity supply, robust telecommunications network, strong international connectivity, fast broadband speed and the availability of data and net hosting operations.

The advent of the e-gaming sector, in particular, has transformed the economic landscape of the Isle of Man. In the 14/15 financial year the sector grew by 22% and had become the largest generator of locally-sourced income, representing 19.5% of the total.

Are You Noticing Any New Trends In Offshoring Strategies?

Traditionally offshoring has been seen as a means of maximising tax efficiency.

Whilst this may still be the case, we are seeing an increasing number of international structures which come to the Isle of Man not to pursue a particular tax advantage but, rather, to achieve “tax neutrality”.

Such structures may have owners/investors in multiple jurisdictions and/or operate in many different localities. Operations need to be centred somewhere and the Island constitutes a high quality financial centre where management services can be provided, or assets held, in a tax neutral manner.

Equally strategies are increasingly driven by a desire to more easily raise finance, to gain cheaper access to capital markets or to access highly regarded and reliable legal systems.

Can You Summarise The Current Tax And Regulatory Regime In The Main Jurisdiction(S) You Operate Within?

The Isle of Man has a standard rate of corporate income tax of 0% and no withholding tax on dividends. There are no capital, inheritance, stamp or insurance premium taxes. Resident individuals are liable to tax on their worldwide income at a lower rate of 10% and an upper rate of 20%, subject to an annual cap of £125,000. Employees, employers and the self-employed are required to make social security payments which give access to state pension and unemployment benefits.

Whilst not a member of the EU, the Isle of Man is a member of the EU VAT/customs area. The Isle of Man Financial Services Authority is the regulator of banks, investment businesses, corporate and trust services providers, professional officers, collective investment schemes, money transmission services and insurance and pensions businesses. In addition there is a Gambling Supervision Commission.

Have There Been Any Recent Regulatory Changes Or Interesting Developments?

Recent developments have seen new regulatory regimes enable the licensing of digital currency businesses and crowdfunding platforms.

The automatic exchange of information with other jurisdictions will gather pace with the first round of FATCA reporting having been completed and the CRS (Common Reporting Standard) requirements commencing.

MONEYVAL, the Council of Europe’s body for anti-money laundering (AML) and counter-terrorist financing (CFT), has published its Fifth Round Mutual Evaluation Report on the Isle of Man in January 2017.

The report’s findings include confirmation of the Island’s very high level of compliance in its AML/CFT legislation, its co-ordination of AML/CFT policies, its understanding of vulnerabilities through its National Risk Assessment (NRA), and its co-operation with other countries.

The report also highlights areas for improvement including the resourcing of financial intelligence gathering and investigations. Measures to address these issues include a National Strategy for enhancing AML/CFT measures and the creation of an independent Financial Intelligence Unit and an Asset Recovery Unit.

Guy Wiltcher is a chartered accountant and chartered tax advisor. He is managing partner of Greystone LLC Chartered Accountants, one of the Isle of Man’s leading independent accountancy firms. He is also a director of Greystone Trust Company, which is licensed by the Isle of Man Financial Services Authority to provide trust and corporate services. He is past chair of the Isle of Man Branch of the Chartered Institute of Taxation and has a particular interest in the UK property sector.